Apple is breaking out — here’s how to trade it

An Apple a day keeps the bears at bay.

Shares of the tech giant hit a new high on Tuesday. Todd Gordon of TradingAnalysis.com is betting that Apple will soar to even more record highs following its earnings report in two weeks.

"Apple is contained in this beautiful 2017 uptrend channel," he said Tuesday on CNBC's "Trading Nation." "It looks to me like we've just broken through resistance just at the $177 mark." This move leads Gordon to think the stock could soar into uncharted territory. (It was down slightly in Wednesday's premarket, trading at $175.61.)

"We should be able to go up and challenge the upper end of the trend channel here, so we'll see if earnings gives us the boost that we need to potentially get over $190," he added.

In other words, Apple could be headed for a 7 percent rally on earnings.

Gordon wants to take advantage of a possible surge in Apple by selling a put credit spread, as implied volatility in the stock is rising leading into the Feb. 1 report. As a result, he is selling the February monthly 175-strike put and buying the February monthly 170-strike put, collecting a total credit of $1.74. This trade sees profits if Apple closes above $175 on Feb. 16.

But Gordon would lose up to $326 if Apple closes below $170 on expiration. While that is currently below current levels, Gordon wants to make sure he establishes a point at which to stop out of the trade to avoid such a loss.

"If we start to drop back below this $173 mark, I would say this breakout is in jeopardy and we want to exit this trade before earnings," he said.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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